GAO, NRRA Spar over Federal RRG Law and What Comes Next

The battle between the National Risk Retention Association and the Government Accountability Office rages on as the private group has publicly criticized a GAO report calling for clarification of a federal law regulating risk retention groups.

The GAO released a report last year in which it defined the domestic risk retention market as healthy overall, but plagued by exorbitant fees levied by individual states taking advantage of loopholes within the Liability Risk Retention Act (LRRA) of 1986.

The LRRA exempts RRGs from accountability to domiciles other than the state in which they are headquartered.

The GAO report states, however, that LRRA is “silent” on its regulations, and “neither explicitly permits nor prohibits non-domiciliary states from requesting additional documentation or charging fees” such as one-time registration fees, annual renewal and filing fees, differing premium tax rates and a “retaliatory” premium tax rate.

The GAO took into consideration state regulators’ comments that additional documentation requests are necessary for feasibility studies since domiciliary regulators are often slow to send this information or never provide it.

The report was submitted to the National Association of Insurance Commissioners for review. The NAIC commented in an appendix, “We agree Congress should consider the merits of clarifying certain aspects of the LRRA.”

Although both the NRRA and GAO believe that states are overreaching their authority in regulating RRGs, the NRRA believes that the Liability Risk Retention Act is already explicit in exempting RRGs from onerous fees in the non-domicile states in which they operate. While the GAO wants the law revised, the NRRA wants payback in the form of a dispute-resolution mechanism that would enable companies to dispute unlawful fees without undergoing the costly process of federal litigation.

NRRA Executive Director Joseph Deems has fired a response letter critical of the GAO’s findings. Deems says the GAO misinterpreted the legal provisions and was not adamant enough in supporting RRGs against state requirements. He wrote that the report “will not only cause confusion, but in certain instances misinterpretation that will lead to more incidents where states violate the federal law [the GAO] set out to investigate.”

The letter also launched a lengthy attack on the NAIC, calling it a non-transparent and unaccountable entity and questioning its standing to provide commentary.

Sanford Elsass, NRRA chairman, says “the most egregious act was that the GAO took the draft and let the NAIC review it and make comments on it when no one else got that privilege. Why, if the GAO is supposed to be doing what is equal and fair to all, does the NAIC get to edit the report? That distorts its value as a taxpayer-funded document of no benefit to anyone but the NAIC.”

Offended by its exclusion in the vetting of the research, the NRRA, the self-established “recognized advocate of the Risk Retention Industry,” proposed that it should have been consulted prior to publishing comments.

According to Alicia Puente Cackley, director of Financial Markets and Community Investment at the GAO and author of the contentious work, says the report was commissioned by the House Financial Services Subcommittee on Oversight and Investigations.

“Because insurance isn’t regulated at a federal level, it has been our practice for some time to have the NAIC to stand in as representatives for state-insurance commissioners.” Their comments are printed in an appendix regardless of whether the GAO agrees with the second opinion.

“We spoke to the NRRA as part of our work and we understood their point of view, although certainly it isn’t the only point of view,” Cackley continues. “The NRRA had a different opinion about what the report should say, and this is within their right. However, we wrote recommendations we thought we could support and that’s what we stand behind.” She is currently preparing a response to Deems.

Meanwhile, amidst the ire, the NRRA is standing behind the Risk Retention Modernization Act, which would address the cost of fighting state regulations. According to the NRRA, half of the top 100 risk retention companies are small businesses writing less than $10 million in revenue and collapsing under the weight of fees, fines and litigation costs.

Unfortunately, Elsass says, “I don’t see any of these issues getting addressed today because of all the problems currently in front of Congress considering the financial condition of theUnited States, its unemployment issues and the political campaign. But what a revised report would do would give a clearer explanation of what the NAIC is not.”

So while the consultative and the government bodies wage a war of the titans, domestic RRGs may have to wait before pressure actually subsides.